Crypto taxation: Cannot offset losses from one crypto against gains from another, clarifies govt

In the recent budget, the government proposed to tax gains at the rate of 30 per cent but there was still some confusion on how gains and losses will be calculated. This reply clarifies one of those doubts.

“As per the provisions of the proposed section 115BBH to the Income-tax Act 1961, loss from the transfer of VDA (Virtual Digital Assets) will not be allowed to be set off against the income arising from transfer of another VDA,” said Pankaj Chaudhary, Minister of State in the Ministry of Finance.

Section 115BBH is a newly proposed section in the Income Tax Act that seeks to define and add provision to tax gains from VDAs like cryptocurrencies.

This simply means, if you bought and sold two cryptocurrencies, for example, Bitcoin and Ethereum, and suffered a loss of Rs 10,000 on Bitcoin but gains of Rs 10,000 on Ethereum, your taxable income will still be Rs 10,000. In many other cases, profit and losses from the same source of assets are allowed to be set off.

In a reply to another question, Chaudhary also clarified that infrastructure costs incurred in mining cryptocurrencies, for example computers and electricity, cannot be deducted from the income as it will be considered capex.

Only deduction that is allowed under Section 115BBH is the cost of acquisition. That means, since mining a cryptocurrency does not involve any cost other than electricity and computers, you will have to pay taxes on the entire value of the coins or token you mine once you sell them.

The questions were asked by Karti P Chidambaram.

Cryptocurrencies have a vague legal status in the country. On the question of clarifying the legal status, Chaudhary said: Currently, cryptocurrencies are unregulated in India.